Monthly Archives: April 2014

Anyway, unofficial title – Mid Month Post: Masterminds Continued, Plus Customer Development Goodies. Not as good a title. Right?

Thought a blog post was in order, because I’m starting to describe my business and “adventures” to random strangers and in emails to my parents again, so it’s probably time to open the valves and let some steam off.

“What’s new this week Nate?”

Customer Development, that’s what. CD is the most sexy thing with the least sexy name ever. It sounds like the job your uncle Bart has in Sioux City, in his fake-wood-paneled office with a stuffed 50-inch steelhead he didn’t catch mounted on the wall. It’s actually the most essential part of business. Strip away everything else, and that’s what’s left – finding a need, and filling it.

Last summer if you’d asked me I would have said Dane Maxwell invented CD. Nope. He just productized it (“productized” – a buzzword I promise the demise of immediately after this post). But crediting Dane Maxwell with inventing CD – even in the E-business entrepreneur space – is like crediting Mike Bloomberg for the East River.

Alright already what’s customer development?!

It’s just talking to people about what problems they have. That’s it.

In my niche that consisted of calling customers who bought my video series and peppering them with questions, all with the goal of identifying the Venn diagram of a problem painful enough to pay a premium price to resolve, and one that I have the means to resolve.

Basically I, who have been selling my product for $20, and who vowed to think bigger than minutely reoptimizing my pay-per-click campaign, was wondering, “what’s a problem you’d pay me $300 to resolve, and be happy to do it?” Or, put another way, “what would the $300 incarnation of my product look like?”

So far I’ve talked to two people, both super cool, both with an infectious enthusiasm for the drums, and learned some things I expected to hear, and other things that took me by surprise. For instance –

Was production value a deterrent to buy, or an inconvenience once you bought? No.

How did you discover me? Googling the other Nate Smith [for readers of this blog not familiar with jazz I have the same name as a much more famous drummer] and found your videos on Youtube instead.

I owe Nate a round.

When we got into “pain points” there were two main things – hassle resolution and personalized feedback. The first should come as no surprise. Just look at the rise of “done for you” services for things we really don’t want to do ourselves. Travel booking. Financial planning. So the value-add is instead of someone taking my videos and specing out (ok I swear that’s a word) their own practice regimen for the next six months, it turns out a few hundred for someone to just do that for them is a pittance.

The second, the personalized feedback, is also not surprising. What do you get in a private lesson that you can’t from a video? A two-way conversation with an expert, in which that person looks at you and makes personalized recommendations. Luckily, that’s pretty easy to scale, if users submit periodic videos to me, which I can batch into an afternoon. Here, as before, the fact that I love talking about the drums with other motivated drummers doesn’t hurt.

Just as an aside, what this is turning into is changing my mind about teaching, to a degree. Between the drummers whom I’ve chatted with to get their feedback and those who have sought me out for lessons, this is not “drum teaching” as I did it before. For starters, this is motivated, advanced students good enough to push me to get better. What’s more, this time I’m doing it on my own terms, not, to reprise a phrase I had the poor judgment to put in an email, “slaving away in-person teaching unmotivated elementary students in a storefront music school between a happy-ending massage parlor and a Beard Papa.”

So this is the fun part. The next stage will be the execution, and as any entrepreneur will tell you, “good ideas don’t matter. I’d rather a bad idea with good execution than the reverse.” Execution will look like 1) actually designing this “uber course”, with continued help from customers, and 2) pre-selling it to them. Don’t know how much I mentioned about conversion funnels in the last post, but I’m also planning to continue to use PPC in a small way to send people to the “event horizon” of my conversion funnel (a buzzword I don’t hate, not least because of the visuals it conjures up). A funnel which will consist of an email opt-in, then a series of auto-responders sending subscribers 3-4 premium videos in their own “mini-course”, followed by a soft sales pitch (“if you like these and want to go deeper, hook up the course”).

Hmmm okay quickly what else is new? Continuing to enjoy the paid entrepreneurs’ social network. Chatted with another newbie this morning in what I thought was a helpful exchange. The endgame is still to get into a “mastermind” (AA for entrepreneurs), or which the process is slower. With the mastermind piece, the pricetag is waaaay worth it. Without it…more of a tossup.

Also doing some hustling for copywriting gigs, offering – as I have in the past – to do work for free for some of the people I admire in the podcast sphere. Definitely no endgame there. Kind of the “go big or go home” mentality – either one of these people I really respect and look up to likes my copy and something comes of it – or doesn’t – or they don’t.

Last thing – elaboration on “go big or go home”. I’m really bullish on this lately, and one insight was this guy who charged me $15 an hour to rent his practice studio. (Need 4g signal for skype lessons….long story.) He has to meet me in person to let me in. After the second or third rude text asking “are you in or not” while I waited for my student to respond, I decided how I would be different from this fellow. Instead of doing things I don’t want to do and charging extremely low rates for it, I want to do primarily things I do want to do (including things that require struggle and discipline in the short term), give most everything away for free, and go for the big paydays.

Like I’m Gordon Gecko or something. Sheesh. Let’s clear a grand profit in an entire month before I start talking grandiosely. But gotta enjoy the small successes along the way.

Well I’ve completed a full lap around the gamut of emotions in the last 24 hours.
To start, my new VA paid for himself this weekend. During the trial week his mission was simple: free me from having to think about how much money I was making day-to-day. And it worked. Had I known this weekend what I learned today I would have had far less fun. And what good would that worry have done me?

Still, I have to face my profit and loss soberly at least once a week. And today was sobering. Here’s the bad news: I’m spending so much on ads that I’m only barely making a profit, even as sales, on a long timeline, continue to trend upward. The other unfortunate fact is I still have extremely little idea what’s going on behind the scenes.

But I’m happy now, and I don’t want to relive the mood I was in earlier today by reliving the events.

Here’s what’s good: PPC (pay per click, or Internet ads you pay for) Chasing is not the business I want to be in long term, and this week’s sales have hastened that realization. Tweaking and optimizing and re tweaking and re optimizing ads to stay ahead of the cash flow with razor thin margins is no way to do business.

The good news of the week, which ironically heightened my anxiety today, is the mastermind network I joined. Here’s the back story: there’s an entrepreneur I just hired to teach me how to Travel Hack, or use rewards credit cards to get flights at pennies on the dollar. (I mentioned my aspiration to do this in my New Years resolution post.) Since I’m one of the first batch of customers, my package included a Skype chat with the founder. I’d been listening to the guy’s podcast and studying his business model enough to know it was one I wanted to emulate: sell a premium product through the Seth Godin permission marketing model. He earned my trust because another podcaster I trust vouched for him, then I checked out his own podcast for a few months before finally purchasing his product. I digress. Anyway, at the end of the call I asked the dude if I could take one minute of his time to ask him about masterminds.

What are masterminds? Perfect moment to back up.

The internet’s biggest booster of masterminds is probably Pat Flynn. Put simply, masterminds are small groups of entrepreneurs that meet and function something like support groups or AA. Sounding out problems for each other. Offering solutions. Holding each other’s feet to the fire – accountability. Great. Where can I get that?

Turns out that’s more difficult than it looks. After I hit up just everybody I know for mastermind advice – from Pat himself to random strangers at Blue Bottle (who turned out, serendipitously just one year and two months late, to be shoe designers) – I was still at square one. The problem was one familiar to any musician, and mirrors the quote often attributed to the Marx Brothers – “I wouldn’t want to be a part of any club that would have me as a member.” There were places with easy access – like Meetup groups – and no quality control, and places with high performers getting hit up all the time by prospective new members and not interested in them at all.

The solution – to join a paid, by application, service – is one I would have been suspicious of, had not the proprietor of Abroaders, whose product I was buying, been a member himself, and been recommending it heartily. I wrote down the web address on a notepad, and went to the site, prepared to pay a small premium in order to join. (I had earmarked some funds to take Noah Kagan’s course before Noah told me if I already had a startup I shouldn’t spend my money on that!) The price was lower than I expected, so I pulled the trigger. There were two ways this could go – it could be culty and a ripoff, in which case I could cancel and not be out too much, or it could be perfect. In theory, the small admission fee might screen out unserious applicants. Oh yea – you have to apply. That’s actually a brilliant sales tactic I’ve seen used elsewhere – one I’m thinking of using myself.

Anyway, once into this private mastermind network, I started checking out the podcast of the founders, and it was like the scene at the end of Season 2 of Game of Thrones, when John Snow first lays eyes on Mance Rayder’s kingdom “beyond the wall.” When I started this blog, I naively wondered if someone could make Tim Ferriss’ lifestyle design work in real life. I assumed the “muse” case studies on his blog were kind of the apex – a woman who invented beach shoes, a dude who made an oversized yoga mat. There were a few dozen “B to C” folks making a go of it, then there was a gaggle of “gurus” – some like Pat Flynn who mostly gave away teaching for free and made (obscene) money from affiliate marketing and others like Ramit Sethi selling outrageously-priced products purporting to teach buyers how to make money online, leveraging, as his expertise based on which he’d teach you, his experience teaching others to make money online. (Yes, my head is also spinning.) Anyway, the first thing I saw, poking my head into masterminds, was a phalanx of pros, many of them in business for a decade-or-more, for whom entrepreneurship and geo-arbitrage were as natural as breathing.

As I started to explore the forums and introduce myself, one thing was clear above all else. This was a Big Pond, and I, the year-in “entrepreneur” selling drum videos and barely eking out a profit, was the Small Fish.

So much the better. With few apparent services to offer the more experienced members (an assumption I don’t accept unchallenged), I would live and die by my social skills. Start conversations. Tell a joke. Be the easy guy to get along with. Be the guy you wouldn’t mind getting stranded in a blizzard in Duluth with. (Poor Duluth, always being the butt of that illustration – wonder if somebody’s leveraged that for the tourism board – “Duluth: the spot it actually doesn’t suck to get stranded as long as it’s in July or August.”) Luckily, a lot of the other members seem to dig helping newbies, and though I wasn’t party to any of the deals I watched cut in the chat rooms (“oh I have a [coding language] guy in the Phillipines. Want to buy a SAAS company?”), people seemed glad to meet me.

Determined to learn from my friends who are social butterflies, I set out to be the most positive, most game guy in the chat room. I messaged anybody with whom I had even the most minor thing in common. In short order I’d hooked up with the New York contingent and been invited to a dinner (that I had to skip).

Then, pay dirt.

A successful entrepreneur from the UK, who was in the “productized music education space” (yes, I had to learn the lingo in a hurry, and yes, I too hate lingo, but it’s useful at times), messaged me back, dug the 8020 Drummer site, and wanted to Skype. Skype meeting set. This was what I wanted. An OG to look at my business, tear me apart, and offer me advice.

Anyway, to return to the story of my chagrin, it was after this Skype meeting with the varsity player was inked that I turned to my sales… Uggh. And the fact that I was now a part of this community made it even worse. I’ll admit the “I’m a fraud” thought crossed my mind before I banished it.

“I am NOT going to practice until I come up with some kind of solution to this,” I told myself. I stayed in the office redoing for the umpteenth time my conversion tunnels – now every ad has its own tunnel, and the main page isn’t connected to anything so I can measure organic traffic, and I put the Facebook conversion code only on the checkout pages, etc – until I had satisfied my need to do Something. Anything.

But in the practice room a really positive thing happened. I remembered Seth Godin’s words from The Dip. Commit to a Market. Be Flexible about your product. With the Friday Skype meeting looming, ideas started to come.

Obviously I don’t have to be locked into this single product, but first and foremost, I need to raise prices. When Chapter Five is released, prices are going up. How will I determine to what figure? Interview my customers. That’s right. I’m going to get on the phone and talk to my customers. Ask them what THEY want.

What’s the biggest Pain Point for drummers, or musicians? Maybe it’s not even drum instruction (though I’ll continue to offer that product because I believe in it). What about a service that hooks musicians up with end-to-end digital portfolios? Sure, I’d have to be careful of what I was promising to avoid the conundrum music schools find themselves in – “selling the dream” – that I want no part of. That would be an appropriate use for an application process, to screen for clients whose abilities would excite potential viewers of their media.

At any rate, I’m excited for what’s going to happen. Just like my approach to the drums, I’m committed to do this for real. As I say in chapter 5 (that I’m currently working on), if there’s a process that’s too messy, inconvenient, or scary for your competition, that’s your in. To reprise a Seneca quote I’ve used in too many places, The Obstacle is The Way.

Will I report earnings accurately, to the best of my ability in this post? Of course. Will I disclose all instances where I need to use “fuzzy math” or can’ t make a true “apples-to-apples” comparison? Of course. Did I delay reporting the earnings until several strategies I had hoped would work started to bear fruit.

Hell yes.

Ok, let’s get to the numbers. We’ll start with the best Apples-to-Apples numbers I can get.

The 80/20 Drummer – Sales from March 15 – April 15 – $621.67

Ad Spending over (roughly) the same period – $471

Here’s where it’s a little fuzzy – I calculated the ad spending form the Facebook invoices, which are billed on fixed dates, so unlike with Gumroad, which allows me to specify an exact period of time, I have to take what they give me. (For some reason Facebook disabled their feature that used to let you track your spending over the last 28 days right on the front page. I think I know the reason…)

To give you an idea of the trend lines, I’d like to zoom out, then zoom in.

Total facebook ad spending, last 6 weeks – $602.59

Total Revenue, last 6 weeks – $782.58

So, last 6 weeks, that’s profit as 23% of total revenue.

Last 4 weeks, 24% of total revenue.

Last 2 weeks – $322.83 revenue, $232.52 Ad spending, for 27% profit.

Am I splitting hairs a little? Yes.

Let’s also not forget website hosting at $20 per month.

Now let’s talk about why I’m not particularly concerned.

First and foremost, I’m earning profit. So while my brand is gaining thousands of views (and surpassing 1000 facebook likes), I’m still making money. In the last six weeks I’ve done a ton of “scale” experiments – let’s see what happens if I double spending on this ad, and cancel spending on this other ad completely. I got “slick” with it, installing “conversion tracking” from Faceboook on my pricing pages to track which ads were sending the most people to the pricing pages.

It’s a pretty simple application of the Pareto Principle, and one that mirrors the theme of my series – find what’s working and do more. Find what’s not working and do less.

Here’s the problem. “Working”, when you’re dealing with Facebook ads, turns out to be difficult to pin-down.

It was the darnedest thing. I would see that one particular ad was “converting” extremely well, so I would triple spending on that ad, and I would see that another was apparently performing “poorly”, so I’d cancel spending on that one. And guess what happened? Sales dried up.

What was going on? To pin that down I had to get away from Facebook’s analytics and use an independent source: Squarespace itself. On Pat Flynn’s advice, I created six parallel conversion ladders. Each of six different ads sent people to its own landing page, each an exact duplicate of the others save the urls. If you landed on page 5 and clicked “learn more” you’d land on More Info 5, and if you clicked “see pricing” you’d land on “pricing 5”, etc. If the ads were converting in the traditional sense, you’d expect to check back in a week and see which pages were getting the most hits. For instance, if “add to cart 5” was making it rain, you’d know ad 5 was converting well, regardless of what Facebook told you.

Are you ahead of me? What do you think I found? Well, here’s a screenshot of the analytics for the last week.

That’s a bit of a lot to digest, so let me break it down-

Home 1 – 45 hits. Checkout 1 (I count this as a “sale” because it means someone has clicked “add to cart”) – 8 hits.

Home 2 – 107 hits. Checkout 2 – 1.

Home 3 – 31 hits. Checkout 3 – 3.

Home 4 – 8 hits. Checkout 4 – 0

Home 5 – 94. Checkout 5 – 1

Home 6 – 19. Checkout 6 – 0.

Now, before we ad in ad data, let’s understand what’s happening. Hardly any checkout page has any hits except for checkout 1. So that means Ad 1 is converting the best, right? Since 8 people of 45 respondents clicked “add to cart”?

Nope.

Here’s why. When somebody lands on one of the home pages, he or she will only reach the checkout page for that conversion ladder if he/she clicks directly through to the checkout page, meaning they’re an instant conversion. And respect to those folks, because that’s no how I buy.

To get a more nuanced picture, consider this number. People who landed on the main homepage – 45 as we said. People who landed on the main “learn more” page? 68. Which means they’re reaching it from other places than the home page. The site has many detours, like “about me”, “browse free videos”, etc., and the button to return to the chapter previews from each redirects to the main chapter previews page.

Ergo, very few people are buying right away. They’re clicking around the site to get the gist, before some of them land on the checkout pages, and others leave the site…for now.

Consider a second data point. No matter what changes I made to my ads, if I cancelled one ad and replaced it with another sales would drop off for about a week. Whatever the reason, that means that people who saw most ads aren’t converting until more than a week later. Think about it – you see a product pitch, you click through to get the gist, but maybe you aren’t ready to buy. A few days later, maybe you’ve seen some videos, and decide the time is right.

The bad news about that is it means it’s almost impossible to get granular about conversion performance. If someone sees an ad, then comes back after 3 weeks to buy, who knows which ad it was. So I have to be modest about my ability to pinpoint exactly which ads are most effective.

There is an outlier, though, if you look again at the numbers. Ad 3 is producing an out-of-proportion number of instant conversions. 31 homepage hits and 3 checkouts. $25.82 total spent in the last week, for a little over $8 per conversion. But remember, that’s only instant conversions. Here’s what the ad looks like –

From a ground-level perspective, what does this mean?

Well, most ads are succeeding in generating interest, which gets people to the site, then the videos and the sales pages make their pitch, and they either buy later or don’t. But the “smart people” ad is different. Somehow, it’s creating a synergy between expectations and delivery – selecting for the exact people who will eventually buy, and giving them just the right expectations so that they know what they’re getting into. It’s a pretty flattering picture, actually, that people see an ad that says drum lessons for smart people, then, after visiting the site, decide, “yea, that’s about right.”

It looks like the trend line on conversions for this ad have gone down. Still, It’s probably worth my while to up the spending on this one to $6 daily.

Ultimately, the reason I’m not sweating the ads so much these days, beyond the fact that I’m making money from them, is twofold. First, the current incarnation of the product is only the first. I’m releasing the final chapter soon, and I may commit to a $10 price increase, which I think will more accurately reflect the value of the product. I’ll probably lose a few buyers for whom price alone is the major qualifier, but I’ve been looking at my data, and very few of my buyers are that. Higher price is not in-and-of-itself a guarantee of higher margins, but it’s a step in the right direction. Mandarin-language versions of the series, and higher production-value/updated versions are both on the horizon.

The second reason I’m “at ease” about things is that I’m playing the “long game”, inspired by Seth Godin’s wisdom in Permission Marketing and The Dip. Eventually I want ad spending to be only a small portion of my traffic, as most people find me through YouTube. I’m also pitching the mailing list almost more than I’m worrying about short-term sales, because I know “1000 true fans” whose lives my free content has enriched will both be a valuable resource in deciding what new products to launch, and also willing to buy those new products.

And if you’re an 80/20 Drummer customer, or prospective customer (or even prospective employee) reading this because you googled me, welcome. I was inspired by Pat Flynn’s example to make a lot of this stuff transparent. I’m also continuing to conduct an experiment in entrepreneurship to see how viable Tim Ferriss’ ideas are for “regular folks”.

I have a lot of thoughts about the direction I want my life to take, and some outsourcing anecdotes to share, but I think 1320 words is plenty for one post, so I’ll leave it there and be back soon with another.